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The Beer Game as explained in Lean Thinking; How to promote flow

“The Beer Game or JIT Game is a simple exercise in which 5 people take roles in a four-stage production process folding and packing three colors of paper boxes. (See figure below)

Beer Game or JIT MIT game

The first person is asked to bundle up and deliver quantities of unfolded boxes in three colors to the two pre-assembly stations. The quantities are in response to a customer order. One pre-assembly station folds the large boxes while the other pre-assembly station folds the small boxes and both stations secure their boxes with a rubber band. The boxes are then passed ahead to the assembly station where the fourth player opens the large box and places the small box inside. The player writes out a ticket, folds it, places it on topof the small box, and then closes the large box and secures it with a rubber band. The box is then passed to quality control/dispatch where the fifth player opens the large box and checks to see that the ticket is present and properly written. This player signs and stamps the ticket before placing it back on top of the small box. The large box is then closed, secured with a rubber band, and delivered to the customer.

The players are told to work at their own pace to produce the three colors of box in response to the customer order. Soon every player is trying furiously to complete his tasks, first for one color of box, then for the next. However, a huge mountain of boxes quickly builds up in front of the fourth player, who has a bigger job than the others. In addition, the customer announces that he wants to change his order, to receive first whichever color of box the team has left till last. This quickly produces even more of a pile-up as the wrong color boxes are pushed to the side so the right color can get through.

The team of five is then asked what’s wrong and what could be done about it. The answer is always the same: “The fourth player is the bottleneck so we need to add another worker to the assembly step and build a storage area between steps two and three”.

The game coordinator then suggests that instead the five players should try a pull system by making only five boxes at a time and only when asked (pulled) by the next player downstream. To the player’s amazement, the whole activity proceeds smoothly, with oly a tiny buildup of boxes between steps two and three. They then play two more rounds, reducing the lot size to three and then to one, eventually achieving perfectly smooth flow and no buildup of boxes at all.

Next the game coordinator says the customer is going to vary his orders at random between the three colors of boxes and asks what will happen. The supplier executives recognize this situation as the key headache in their lives and predict chaos. But, of course, with no boxes piled up in inventory, it’s a simple matter to switch from one color to the next.

As the supplier’s managers are scratching their heads, the team moves from games to reality by suggesting that the exact same techniques should be introduced in the shop floor activities.”

Womack, James P. and Jones, Daniel T. Lean Thinking. Banish waste and create wealth in your corporation. Pp 208-209. Ed Simon & Schuster UK, Ltd. 2003. London, UK.

More resources on the beer game:

The Beer Distribution Game:    http://www.beergame.lim.ethz.ch/

The BeerGame Portal:    http://www.beergame.org

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Maasaki Imai reviews Kaizen and Just in Time 23 years later. It is time to meet the challenge for surviving

The 73-year-old mind of Masaaki Imai runs razor sharp belying the frailty of his small frame. He talks with sincere conviction, pausing to select the right words.

He has to be careful, after all, his words have been changing the way the corporate world talks, and more important, acts.

When he first threw the word ‘Kaizen’ at the corporate world through his book Kaizen: The Key to Japan’s [ Images ] Competitive Success in 1986, it was swallowed hungrily by a world in the throes of transition. Translated in fourteen languages, Kaizen became a fad the world over.

Toyota [ Images ], the outstandingly successful Japanese carmaker, became one of his most committed followers.

However, Imai, the founder of a leading international management and executive recruiting firm, and consultant to over two hundred companies, realized that the concept had neither been digested nor well implemented.

He introduced an evolved form of Kaizen in 1997 in his book Gemba Kaizen: A Commonsense, Low-Cost Approach to Management, to reassert the importance of the shop floor in bringing about continual improvement in an organization.

Today, the father of ‘Kaizen’ and ‘Gemba Kaizen’ is convinced that to survive in an increasingly competitive world, top management must adopt a just-in-time approach and drive change down the hierarchy without yielding to resistance.

Forget forecasting, concentrate instead on crashing the time taken to execute orders. According to Imai, 90 per cent of all corporate problems can be solved using common sense and improving quality while reducing cost through the elimination of waste is the only option for survival.

In an exclusive interview to The Smart Manager, Imai explained the principles underlying his just-in-time philosophy:

Kaizen is about constant continual improvement but in today’s world, are small improvements enough? What if you need to make big, radical changes?

Kaizen is the means to achieve a corporate strategy, not the strategy. Every corporation needs to make a radical change, or some change at least, to survive in this very competitive, rapidly changing world.

The most important challenge facing top management today, especially in a manufacturing company, is to establish a target about where they want to take the company in the next two, five and ten years.

In manufacturing, there are only two systems. One is the batch or queue production system, and the other is what we call just-in-time (JIT) or the Toyota production system.

One of the most urgent tasks for top management is to choose the strategy, and say that we have decided to change to the just-in-time production system to be able to survive in the new millennium.

Kaizen is misunderstood by most people. They say Kaizen is small step improvement and this is the age of big jumps, but in my way of thinking, the biggest jump is making the transformation from the batch mode to JIT.

Why should companies move away from the batch mode to just-in-time?

The batch production system, to which almost 99.9 per cent  of all manufacturing companies subscribe, is destined to perish. It is the most inefficient way to make products.

It is prone to all kind of shortcomings: it is almost impossible to build quality in a product and it defeats the purpose of making products at low cost.

It also makes it very difficult to meet customer requirements, which come in different orders, like different volumes in different time frames and so on. On the other hand, JIT production system is the opposite of the batch system.

The batch system derives from the agricultural mentality. When the industrial revolution took place in the nineteenth century, managers adopted the pattern of production from agriculture: first you sow seeds, then harvest and store. The more wheat you had, the more secure you were, so everything was made in big batches.

Similarly, in the batch system, you purchase material and produce in big batches and there are many processes. At every process, you accumulate the batch and at the end you accumulate the finished product in a batch, which is stored in the warehouse.

Which is very efficient, offers standardization. . .

This kind of production system is based on market forecast. You say, this year we will sell half a million cars, so you plan according to that and start making half a million cars. What happens if your forecast is wrong and you manage to sell only quarter million cars?

You are left with quarter million cars unsold and a chunk of cost — labour, raw material, etc — is in it. What are you going to do? You think it is the most efficient production system?

Batch system is good when there is demand. As a company begins to acquire the capacity to produce faster and faster and more and more, eventually there will come a time when its production capacity goes above what the market can bear.

Today, several Japanese electronic companies are in big difficulty. What do you think happened to these companies?

These are the companies that didn’t know that they should have introduced JIT. Most of the electronic companies have a production system based on assumption of the market and market forecast.

The same thing happens in the computer chip industry. You end up with huge inventory of unsold products and excess capacity, then you borrow money to carry that inventory. By that time you have acquired too many people for every process.

Do you think that is a very efficient way of making a product? Eventually the company will have to restructure or go bankrupt.

And what is the solution? Just-in-time. The starting point of JIT is to pull from the market. The market should always come first and production later.

How long would the customer have to wait for the product?

In some cases, only a few hours. In the case of a car, maybe a few days.

But it is a competitive market, why would a customer wait? There are lots of car manufacturers, there is lots of choice, I can walk into any showroom and buy a car. Why should I wait?

In batch system, the company has to anticipate that the customer will request this kind of a model. Right? And it will have to build an inventory of this kind of car, but they don’t know how many orders are coming. They have to have so many cars waiting for your order to arrive, which is very inefficient.

The customer may not know that she wants a product. The inventor has to estimate the market for it. It is the role of marketing to define the product and the role of production to make the product.

Well, I think it is the other way round. The role of marketing is to dig out the potential or hidden requirement that the market has.

You don’t follow the product out approach but first find the need of the market and then make the product. If you don’t have technology, you have to develop it and if you don’t have the machinery for such a product, you have to design it.

Managers today are obsessed by a ‘growth’ mentality? Do you think growth is a smart strategy?

I can say that 99.9 per cent of all companies in the world today are obsessed by a growth mentality. These are companies that can make profits only when the market is growing.

In real life, market demand always fluctuates. The only companies that will survive in to the next millennium will be the ones that have the flexibility to produce according to fluctuating demand.

I read that Kaizen works most effectively in the time of crisis. Why?

During a crisis, everyone understands the urgency of the situation. The transformation of the production system is a massive physical operation, like operating on the bone structure itself, which is why it is very important that top management be committed to make such a transformation.

That is the only way to survive in the new millennium because it is the most effective way of making a product. It also increases your cash flow immediately, so when companies are faced with crisis, it is the best time to introduce Kaizen.

For instance, in India, there are many situations emerging, like China exporting products far below the cost price.

In this age of global supply chain management, being the best in India is not enough, you have to be the best in the world.

Do you have a Kaizen institute in China? What makes China so efficient?

No, we don’t have an institute in China. What makes China superior is its labour cost, which is 1/50th of Japan’s labour cost.

But lower labor cost does not equal efficiency. What makes China so efficient?

I wouldn’t call the country very efficient. They can produce a certain product, particularly consumer-related products, at a lower cost in mass production because so far many western and Japanese companies have transferred technical know-how to them.

China has acquired the basic production capacity. Earlier the same thing happened with Malaysia, Korea, Taiwan. Today it is China’s turn.

What happened was that Japanese, American and European people have transplanted technology, they hired local people and brought machines there and trained them to do the job. So that’s how they can produce.

So, would you call China a superior manufacturer?

Not superior, but they can produce at a far more competitive price. Superior has many connotations, in terms of design, efficiency, etc. I certainly wouldn’t call China superior.

They also have efficient processes. . .

But so far, those processes have been given to them from Japan and the western world.

The price of labour is cheaper in China, but would the productivity of a Japanese worker be higher than that of a Chinese worker?

I am talking about labour cost. Of course, you have to make quality products and in order to make quality products, you must have quality conscious employees. How do you develop quality conscious employees?

Most Japanese companies when they went to China had a hard time training them, the people didn’t have quality consciousness.

The Japanese spent a lot of time selecting the right people and training them in production procedures. So this kind of training has been provided along with some basic principles of quality assurance.

These managerial practices can be transferred, but you see in China, they are paying the equivalent of one Japanese worker’s wages to fifty people. Quality control has been introduced and can be exported in any country.

Japan was at its peak in the 1980s but now China is far ahead, does this suggest that the Japanese model is invalid?

We need to distinguish between external circumstances (social, cultural and political infrastructure) and internal circumstances (like how business is conducted within the company).

The recent negative reports about Japan relate to the external circumstances, such as governmental regulations, overprotected market in some sectors, aging society and the Big Bang needed by the monetary institutions.

There is a realisation that Japan Inc may not be functioning as efficiently as it used to. This in no way means that Japanese management practices (internal management of the company) have proven to be inferior.

The Japanese companies developed a very effective system of management, particularly in the manufacturing sectors, and the rest of the world has much to learn from these practices.

What are your views about management practices in the Indian corporate sector?

I see that Indian managers are extremely intelligent. They are abreast with latest technologies and developments. But the problem is that they completely isolate themselves from reality.

They are under the impression that real knowledge can be gained only by reading books and attending lectures. How often do they actually roll up their sleeves and get into some action?

They really need to make more effort [at getting into the thick of action]. They have immense knowledge, but what they lack is wisdom that comes by doing things yourself.

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Published with the kind permission of The Smart Manager, India’s first bi-monthly management magazine.

 
 

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Let’s talk about Kanban, the second pillar of TPS after JIT

The core of lean manufacturing, kanbans use the “pull” system to prevent waste by creating a cyclical relationship between the consumer, supplier, and manufacturer. The user of a material requests or “pulls” material from the supplier, as they need it. They do this using some form of notification.  Product consumption information is sent from the user upstream to the supplier so that consumed materials can be restocked as needed. Ultimately, this eliminates overproduction and waste from the previous unnecessary use of materials and machinery.

Roughly translated as “sign” or “visual card,” a kanban can be any device that communicates the need for an item. Kanbans ensure that only what is needed is ordered and in the proper amount.

The first kanbans, signboards, were used to transfer inventory information between production processes. Taiichi Ohno, former vice president of Toyota Motors, designed the concept in the mid 1950s after observing the operating system of an American supermarket. He was taken with the concept of only supplying what was needed, when it was needed, and how greatly this prevented unnecessary production and waste.

Considered one of the most price accessible means for inventory control, kanbans exist in manual and electronic forms (anything from a plastic container to a software program). It reduces unnecessary inventory, eliminate shortages, and cuts costs. Bringing improvements in price and quality, kanbans exists in three types: supplier, in-factory, and production.

  • Supplier kanban: Alerts parts suppliers as to what specific production parts are needed and how many.
  • In-factory parts-retrieval kanban: is used between factory processes to manage inventory.
  • Production kanban: Indicates operating instructions for factory lines.

Successful implementation requires that four rules be followed:

  • The production process works against the grain, starting with the consumer order and working it’s way back to manufacturing to eliminate any excess materials.
  • Manufacturers must only produce what has been ordered in the exact order and quantity it received in the request.
  • Products must remain 100-percent defect-free to continue down the production line.
  • Kanbans should be gradually decreased over time to uncover and correct production areas needing improvement.

Check more in QualiPedia

Electronic Kanban Helps TRANE Stay Lean

More than 80 percent of the firm’s purchasing is done online using an electronic kanban system.

TRANE Residential Systems, is a lean organization that knows about growth through innovation. In 1931, TRANE came up with the radical idea of using technology to provide relief from the summer heat. The 1938 launch of the Turbovac, the industry’s first hermetic, centrifugal refrigeration machine, fundamentally changed the concept of air conditioning in large buildings. This was the beginning of a long chain of innovations that eventually led to TRANE’s current CenTraVac, the industry standard for large commercial air conditioning systems. This energy-efficient system with its superior performance in minimizing refrigerant emissions, has earned TRANE the “Best of the Best Stratospheric Ozone Protection Award” from the U.S. Environmental Protection Agency.

The lean metrics are impressive.

As part of a Six Sigma project, TRANE Residential identified Ultriva, a lean manufacturing software solution, as part of its control plan. TRANE has been using the software for more than a year, and the work-in-process (WIP) and the raw and in-process (RIP) inventory are down more than $4 million. More important, that improvement has been sustained. More than 80 percent of the firm’s purchasing is done online in real time with suppliers using Ultriva’s electronic kanban pull system.

“The company now has total visibility of what’s where—something I’ve never been able to do with any MRP [material requirement planning] system, and I’ve worked in many,” says John Young, materials and supply chain leader of TRANE Residential Systems in Vidalia, Georgia. “All parts that go from our warehouse are kanban pull with manufacturing lines, and our entire fabricating department, where we make lots of stampings, is run off of this system—giving us tools such as capacity management as well as kanban pull.”

TRANE’s lean initiative

The lean initiative at this particular plant has been in process for about two years, says Young. “However we’ve had deep roots for more than ten years in demand flow technology and going so far as to have true mixed model flow production assembly lines during that time,” he notes. “Our entire plant-level team is, by function, a lean leader, including the plant manager. From a corporate level within our division [TRANE Residential Systems]—it’s mimicked similarly in that all functions are expected to be the lean leaders of our initiative. From a higher level of Ingersoll-Rand, even our CEO participates in two kaizen events a year at different plants, so it’s becoming part of our culture for sure.”

In the past, TRANE used differing types of kanban systems with sporadic success across TRANE Residential locations. There was no standardization and in most cases the kanban systems would not run correctly. Cards were lost, there was no known way to resize efficiently, and there was no visibility of kanban being in process with suppliers. Ultriva became a solution because of the organization’s desire to implement kanban.

“I wanted some technology enablers to allow us management tools as well,”  explains Young. “We came across Ultriva as a solution due to a Six Sigma project team I was helping lead on material planning improvements.”

Conditions needed improvement

TRANE was facing a variety of problems: there were too many stock outs, too much material, no parts visibility with suppliers, and no parts-in-transit visibility. There was also no ability to measure on-time delivery or have real-time receipts with suppliers.

“[TRANE Residential] needed poka-yoke on receiving processes and material control needs,” recalls Young. “We needed access to the data to address increases and decreases in demand for kanban systems, and there had to be a supplier portal to have visibility into our shop floor. All this was needed along with the ability to run MRP orders the same as kanban, but just as one-time orders.”

Several electronic kanban software programs were considered, including a home-written one that was being used for internal fabricated parts in the Tyler facility. “In the FMEA [failure mode effects analysis] of our Six Sigma project on material planning improvements, Ultriva was able to move almost all of our highest ranking issues to non-issues through poka-yoke or minimal issues through its superior methodology,” says Young.

In April 2008, TRANE Residential streamlined its purchasing system as well as its internal management of the fabrication department, which made capacity management more visual. The company officially moved to consumption-based replenishment purchasing using real-time bar-coded receipts with poka-yoke (to prevent double ordering or double receiving). The company now has total closed-loop procurement internally and externally through kanban systems, producing a much cleaner value-stream mapping process.

Specific benefits of consumption-based replenishment:

  • $4.7 million in material savings through the successful implementation of the control plan for the companies Six Sigma project
  • $243,000 savings in 90 days (pilot period)
  • Increased turns from low single digits to 25+ and is on track to hit 33 by the year’s end (measured as COGS)
  • Stock-outs with no visibility as to why its gone
  • When there is a stock-out, the company sees it coming and is certain as to the root cause after only minutes of data analysis.
  • On-time-delivery metrics for suppliers are now available, none previously existed.
  • Transit lead time metrics (impossible in other systems)

“We have a Fab Supermarket, too, that we manage through our electronic kanban system,” notes Young. “These parts have been reduced more than 50 percent in the past year. We have a true way to measure supplier on-time delivery. We never really could before. And this can be for any kanban loop. So even internally we can measure and adjust. Based on our running a successful pilot here in Vidalia more than a year ago, we chose this to be a solution at all Trane RS [Residential Systems] plants, and the other three sites are in process of implementing now.”

Lean technology providing a competitive advantage

The electronic kanban system is utilized within the entire supply chain across the TRANE Residential division, and implemented in more than 85 percent of Vidalia’s spending. All sites within TRANE Residential are expected to be on the system within the next year and a half.

“This [system] provides a competitive advantage in that we are able to see down to very granular levels of details, what’s happening in our supply chain,” Young explains. “This analysis tool allows a manager to truly zero in on root cause and remove emotions from analysis, and drive data-driven decision making. Being able to have full visibility into our supply chain allows us to react to unforeseen circumstances better, react to demand shifts, minimize impact to our financial stakeholders, as well as give realistic expectations to internal and external customers.”

Ultimately, this lean technology solution has become a major pillar of TRANE’s rapid improvements, both in the supply chain and in internal processes. “The technology is an absolute enabler and makes improvement sustainable; and it allows us to more rapidly identify and execute on improvements, which of course is the key to lean: continuous improvement,” says Youn

From Thomas R. Cutler in Quality Digest

 
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Posted by on July 8, 2009 in Lean Manufacturing, Toyota

 

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